Launch of the OECD Employment Outlook 2011

Opening remarks by Angel Gurría, OECD Secretary-General

Paris, 15 September 2011

Ladies and Gentlemen,
Today’s release of the 2011 OECD Employment Outlook comes at a very difficult time. Economic growth is faltering in many OECD economies and there has been some pegging back of rapid growth in major emerging economies. At the same time, unemployment remains stubbornly high in a number of countries, more than two years into the recovery from the financial and economic crisis.

Of all the facets of this crisis, from sovereign debt to banking, high unemployment is the elephant in the room. This is the human face of the crisis, the most visible manifestation of the challenge we face to restore sustained growth.

The Outlook puts the spotlight on two particularly worrying aspects of the current situation: the serious threat of unemployment becoming entrenched, and the disproportionate impact of the crisis on youth unemployment. Let me say it loud and clear: tackling high and persistent unemployment, improving job opportunities and ensuring adequate social safety nets should be at the top of the political agenda. And, indeed, the G-20 Employment and Labour Ministerial meeting that will take place in Paris on 26-27 September gives a great opportunity to discuss how best to tackle these challenges.

However, this Outlook also reveals a striking diversity in terms of how the crisis has affected unemployment in different OECD countries. In particular, some countries have contained the rise in unemployment, or even reduced unemployment, through timely investments in labour market policies. In other words, policies and institutions matter.

Unfortunately, the most recent economic news is not good, and the short-term growth prospects for the OECD area are weaker than what we had been projecting in May. The recovery stalled in the second quarter in large OECD economies, world trade stagnated over the summer and business and consumer confidence have dipped alarmingly. Within this overall gloomy picture, some OECD economies have been performing better than others. And one bright spot has been the continuation of robust growth in emerging economies such as Brazil, India and China.

Employment growth has been sluggish

The stalling recovery follows a period of anaemic job creation in many OECD countries, and over the past few months we have seen some further weakening. In the United States, for example, there was no job growth in August. Companies are still wary about hiring more workers as uncertainty about future growth prospects remains uncomfortably high.

Consequently, only a small dent has been made in the high unemployment that accumulated in a number of countries during the “Great Recession”of 2008-09. By mid 2011, unemployment in the OECD area was still stubbornly above 44 million, over 13 million higher than its pre-crisis level. And the OECD unemployment rate, at 8.2% in July, has declined by only 0.6% from its post-war high of 8.8% in October 2009.

But a striking feature of the Great Recession and subsequent recovery has been the large diversity in labour market performance. Some countries, including Australia, Japan, Korea and the Netherlands, have managed to contain the increases in unemployment during the crisis, while Germany actually reduced unemployment from the pre-crisis level. Others, including Greece, Ireland, Portugal and Spain have reached double-digit unemployment rates in July 2011 and the US unemployment rate more than doubled to over 9%. The fact that some countries have weathered the labour market storm relatively well is not down to luck: it reflects their investments in effective labour market policies and prompt action in the aftermath of the financial crisis.

There is serious threat of unemployment becoming entrenched

One of the most worrying features of the present situation is the steep rise in the number of people who have been unemployed for a year or more in some countries. Before the crisis, long-term unemployment affected 4 out of 10 unemployed people in France and Germany but it was less of a problem in Spain and the UK, and affected only one in ten unemployed in the US.

The picture is different today. Long-term unemployment has tripled in the US affecting more than one in three unemployed. In Spain, more than 40 per cent of the many unemployed have been out of work for more than a year. Among the major OECD economies, only in Germany has the incidence of long-term unemployment fallen. We know from past recessions that steep hikes in long-term unemployment can take many years to unwind, and in the meantime the long-term unemployed are at high risk of poverty.

The imperative of boosting job creation while maintaining an adequate safety net

How should governments respond to this difficult labour market situation and prevent a persistent rise in unemployment? First and foremost, they must ensure that they have in place a credible medium-term strategy of fiscal consolidation. This is important for unwinding large increases in public debt, rebuilding confidence and ultimately renewing the basis for sustained growth. At the same time, in those countries where the labour market remains sluggish and economic growth has weakened, further measures may be required to stimulate job creation where there is room for fiscal manoeuvre.

Renewed job creation is essential for bringing down unemployment and long-term unemployment. But, in the context of limited public resources , the focus should be, more than ever, on cost-effective measures that focus on the most vulnerable groups. Net hiring subsidies which support companies that decide to expand their workforce can be a cost-effective way to boost job creation in the short-run. For example, last week’s announcement by President Obama of the American Jobs Act includes a proposal of tax cuts for small and medium-sized businesses if they hire new workers and companies will also get a tax credit of $4,000 if they hire a long-term unemployed person.

At the same time, income support to the unemployed should be maintained as President Obama has proposed, but it is essential to condition it on effective job search, as discussed in this Outlook.

Expanding the coverage of basic social protection programmes is also a challenge for many emerging economies in order to reduce the risk of poverty and exclusion. However, careful design of these programmes is required in order to improve their cost-effectiveness and to avoid harming work incentives. In particular, emerging economies should consider targeting income support to those who need it most, better integrating their social protection programmes, and promoting self-insurance based on individual savings accounts among those who can afford it.

More in depth reforms are also necessary, especially for youth

At the same time, these short-term measures to stimulate job hiring and bolster the social safety net need to be taken as part of a comprehensive package of reforms to improve the functioning of the labour market. The success of a number of OECD countries, in particular Germany, in limiting the rise in unemployment during the crisis points to the importance of putting in place these structural reforms, even if they take time to feed through to a more resilient labour market.

As emphasised in this year’s Outlook editorial, one group who deserve particular attention is youth who must be given a better start in the world of work. Building on our in-depth country reviews on youth employment, we have prepared a report on youth in collaboration with the ILO for the G-20 Employment and Labour Ministerial meeting. Promoting better job opportunities for youth is a challenge that cuts across all countries.

In the first quarter of 2011, the unemployment rate for young people (aged 15 to 24) was 17.4% in the OECD area compared with 7% for adults (aged 25 and over). Youth who are not in employment or in education and training (the so-called NEETs) face a high risk of labour market and social exclusion. In the 4th quarter of 2010, this group accounted for 12.6% of all youth aged 15-24 in the 30 OECD countries for which data are available, up from 10.6% in 2008. In emerging economies such as Brazil, Indonesia and South Africa, this share is much higher still.

Improving the labour market situation of youth requires a two-pronged approach. First, action needs to be directed at tackling the rise in youth joblessness that took place during the crisis. Policies involving job-search assistance, hiring subsidies and remedial assistance should focus on the most disadvantaged youth, including those at high risk of exclusion. In a number of countries, there is also a need to expand opportunities for “study and work” programmes, such as apprenticeships and other dual vocational education and training programmes.

Second, policies must be put in place to overcome the long-term failure to give all youth a better start in the labour market. This requires improving early childhood education and development and ensuring youth do not drop out from school. As documented in the Outlook, it also means achieving a better match between the skills youth acquire at school and those needed in the labour market. Barriers to the employment of youth also need to be removed. These may include overly-high labour costs of hiring unskilled youth, as well as hiring and firing rules that relegate youth to dead-end temporary jobs.

Better employment policies are crucial for better lives

Let me sum up. This year’s Outlook again highlights the importance of better employment policies for better lives. Policies that promote job creation, better job opportunities and well-functioning social safety nets are crucial for helping the many who are still struggling to find jobs. These policies should be seen as sound social investments for tackling the large human cost of unemployment and promoting sustainable improvements in economic growth and well-being. There are no quick fixes here and governments will face difficult trade-offs in managing the constraints imposed by fiscal consolidation with the need for additional measures to kick-start job creation while bolstering social safety nets for the vulnerable.

As always, the OECD stands ready to help in making these difficult policy choices and we count on your support to help us disseminate our findings which can inform these choices.
Thank you very much.